# Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio (Note: Consider completing Problem 13-2 after

## Question:

Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio (Note: Consider completing Problem 13-2 after this problem to ensure that you obtain a clear understanding of the effect of various transactions on these measures of liquidity.) The following account balances are taken from the records of Liquiform Inc.:
Cash ................ \$ 70,000
Short-term investments ........ 60,000
Accounts receivable .......... 80,000
Inventory ............... 100,000
Prepaid insurance ........... 10,000
Accounts payable ........... 75,000
Taxes payable ............ 25,000
Salaries and wages payable ....... 40,000
Short-term loans payable ........ 60,000
Required
1. Use the information provided to compute the amount of working capital and Liquiform€™s current and quick ratios (round to three decimal points).
2. Determine the effect that each of the following transactions will have on Liquiform€™s working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. (For the ratios, round to three decimal points.) Consider each transaction independently; that is, assume that it is the only transaction that takesplace.
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